DEALBOOK

DEALBOOK; A Trustbuster's Song Is Ending. But a Coda Is Possible.

By ANDREW ROSS SORKIN

Published: May 30, 2004

DON'T call Mario Monti a lame duck.

Mr. Monti, the European Commission's chief antitrust enforcer and the world's de facto trustbuster, is planning to retire this fall. But the man who blocked General Electric's acquisition of Honeywell, helped kill WorldCom's planned purchase of Sprint and branded Microsoft a monopoly still seems to be going about his job as if it were just starting.

In what could be one of his last acts as mergers god, Mr. Monti, 61, still has to decide whether to bless -- or veto -- the combination of the music units of Sony and Bertelsmann, a deal that would create the second-largest record company in the world, behind Vivendi's Universal Music Group. If the concerns he raised last week in a 60-page statement of objections about the transaction are any indication, the prospect of another deal funeral on his watch is not remote.

Sony, which has a roster of artists that includes Bruce Springsteen and Céline Dion, and Bertelsmann, home to Britney Spears and OutKast, are betting that they can get approval for the deal. Privately, they seem genuinely confident about their chances.

But maybe they should recall the words of John F. Welch Jr., the former chairman of General Electric, who was similarly confident when he flew to Brussels in 2001 to negotiate concessions with Mr. Monti over his deal with Honeywell International. ''The European regulators' demands exceeded anything I or our European advisers imagined,'' Mr. Welch said at the time, ''and differed sharply from antitrust counterparts in the U.S. and Canada.''

Most experts expect the Sony-Bertelsmann merger to be approved in the United States and Canada. But they also anticipate that Europe -- and Mr. Monti in particular -- will be a problem. Mr. Monti has, after all, been tough on previous music deals. In the fall of 2000, under pressure from him, Time Warner and the EMI Group withdrew plans for a $20 billion joint venture in music. He also scuttled talks between EMI and BMG, the Bertelsmann music unit.

Why do Sony and Bertelsmann think that it will be any different this time? The companies contend that the merger is necessary, what with the music industry being pummeled by piracy and peer-to-peer file sharing.

That argument may have worked a year or so ago -- before Apple's iMusic Store and other legitimate online services and the recent rebound in music sales -- but may be less persuasive today, experts said. What's more, in his statement of objections, Mr. Monti revisited the subject of a 2001 investigation: possible price fixing and collusion among the world's top music companies, which charge different amounts for the same product in different countries and have long appeared to be in lock step. You have to believe that Mr. Monti will not approve any merger in an industry he sees as rife with abuse.

Still, Sony and Bertelsmann may have a chance to win approval. Indeed, they were so adamant about getting their deal past Mr. Monti that they rushed last year to sign a merger agreement without nailing down many of the most important details. The reason was that they wanted to get it on the regulator's docket ahead of another deal proposal that was anticipated at the time -- Time Warner's sale of its music unit to EMI.

The clever maneuver had an extra beneficial effect. Time Warner ended up rejecting a deal with EMI out of fear Mr. Monti would kill it in light of Sony's and Bertelsmann's proposed merger. Instead, it sold Warner Music to a consortium of investors led by Edgar Bronfman Jr. and Thomas H. Lee Partners, who posed almost zero regulatory risk.

So Mr. Monti does not have to confront the prospect of two giant music deals that would have taken the industry from five big players down to three. But as his statement of objections indicated, he still seems to have grave concerns about any consolidation in the industry.

Executives briefed on Mr. Monti's list of objections said he was concerned mainly with the effect the deal would have on the diversity of music and artists to be offered and how the music would be priced. Warner Music, Apple and several groups of independent artists have objected to the deal, arguing that it would significantly dampen competition.

Coincidentally, Mr. Monti's statement came as General Electric and Honeywell made arguments this week in Luxembourg appealing Mr. Monti's decision to block their deal several years ago. The companies do not want to merge any more, but they hope that a successful appeal may diminish Mr. Monti's judge-and-jury powers.

He has been overruled before: a European court overturned his decision to block the merger of two British travel companies, Airtours (now MyTravel Group) and First Choice Holidays. The court also overruled his decision to stop a merger of the French electrical equipment maker Schneider Electric with a rival, Legrand, and reversed his ruling to block the acquisition of the French bottle maker Sidel by Tetra Laval, the Swiss packaging conglomerate.

That has not seemed to have any discernible effect on his aggressiveness. And a lame duck -- if you insist on calling him that -- has nothing to lose.

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